Oil jumps 4 percent, holds gains despite Wall St reversal

By Gene Ramos

NEW YORK (BestGrowthStock) – Oil prices jumped 4 percent on Wednesday, the biggest one-day rise in nearly eight months, as a tentative recovery in risk appetite lifted broader markets and government data showed a big bounce in U.S. oil demand.

However, prices pared gains in post-settlement trade after U.S. equity markets reversed near the close on a report that China was reviewing its euro-zone debt holdings.

The day’s earlier higher oil prices were supported by strong orders for U.S. manufactured goods and the risk of OPEC intervention below $70 a barrel.

The U.S. July NYMEX crude contract settled 4 percent, or $2.76 higher, at $71.51 a barrel, lifting the front-month contract from Tuesday’s low at $67.15, its weakest since July 2009. It was the highest settlement for front-month crude since May 14, but the day’s percentage gain was the largest seen since September 30, 2009.

In London, Brent crude gained $2.19, or 3 percent, to $71.74, ending a nine-session losing streak fueled by growing fears that the euro zone debt crisis could undermine the economic recovery.

“It was a rebound back into risk assets, helped by the durable goods data, that extended the lift from equities that developed late on Tuesday,” said Matt Smith, energy analyst at Summit Energy in Louisville, Kentucky.

Those gains unraveled late on Wednesday as euro zone jitters were rekindled by a report by London’s Financial Times that representatives of China’s foreign (Read more about foreign investment into China) exchange administrator had been meeting with foreign bankers in Beijing in recent days to discuss its euro zone holdings.

The S&P 500 fell more than half a percent after the report, while the euro deepened losses for a third day. (.N: ) (USD/: )

Oil prices have dived nearly 23 percent since a 19-month high at the start of this month, plunging below the $70 mark that OPEC has said is the low end of its preferred price range. Some ministers have expressed concern over the pace of the market’s steepest decline since the financial crisis.

Kuwaiti Oil Minister Sheikh Ahmad al-Abdullah al Sabah said the Organization of the Petroleum Exporting Countries would take notice if oil prices fell to $65 a barrel.

Shokri Ghanem, chairman of Libya’s National Oil Corp, told the Reuters Global Energy Summit that OPEC members were talking informally about the drop in oil prices, and are urging each other to comply more closely with agreed supply targets.

Apart from potential OPEC action, oil was also aided by earlier gains in U.S. stock markets after data showed new orders for long-lasting U.S. manufactured goods rose more than expected in April, spurring bargain buying. (.N: )

At the same time, the Paris-based Organization for Economic Co-operation said that the global economy is recovering faster than expected, with Asia leading the way, though it is at risk from huge debts in developed countries and possible overheating in countries such as China.

“The concerns that European economies are at risk of a double dip appear to have receded, some of the selling appears to have been exhausted, and positive economic indicators are in the ascendant in relation to apparent deleveraging of risk by financial markets,” JP Morgan analyst Lawrence Eagles said.

INVENTORIES

Oil extended gains after data from the U.S. Energy Information Administration on Wednesday showed demand for oil products in the United States over the past four weeks rose almost 7 percent from a year ago. (EIA/S: )

The front end of the U.S. futures curve also gained on data showing crude oil stocks at the Cushing, Oklahoma, delivery point fell for the first time in 10 weeks, with the front-month crude spread rising 32 cents to put July at a $1.03 discount to August, its strongest in more than a month.

Even so, total U.S. crude inventories continued to increase, rising 2.4 million barrels last week and extending a buildup for 16 of the past 17 weeks.

Gasoline stocks fell by 200,000 barrels, as predicted by the market, while distillate stocks, including diesel and heating oil, posted a surprise fall of 300,000 barrels.

The Trans-Alaska Pipeline, partly owned by BP (BP.L: ), shut down on Tuesday after spilling several thousand barrels of crude oil into backup containers, drastically cutting supply down the main supply artery to refineries from Alaska’s oil fields.

Jean-Jaques Mosconi, head of strategy at French oil major Total (TOTF.PA: ), told the Reuters Energy Summit that prices were unlikely to fall far below $70 a barrel as global demand was increasing.

“Europe is the big issue here. China is doing well, India is growing, the Middle East is growing. Even the U.S. is recovering,” Mosconi said.

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(Additional reporting by Robert Gibbons and Ed Mcallister in New York; David Sheppard in London; and Alejandro Barbajosa in Singapore; editing by Jim Marshall, Sofina Mirza-Reid)

Oil jumps 4 percent, holds gains despite Wall St reversal